Professional Documents
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NOT RATED
S$0.93 N/A N/A N/A
Conviction
Market Cap
Free Float
US$1,198m
S$1,492m
US$-m
S$-m
44.0%
1,604 m shares
CIMB Analyst
Donald Chua
T +65 6210 8606 E donald.chua@cimb.com
Its offer price of S$0.93 translates to yields of 6.0-6.3% for FP12-FY13 and 1x P/BV. This is priced near the forward yields of 6.0-6.2% and 1.2x P/BV for its closest peer, CDLHT, previously the main liquid proxy for the buoyant local tourism industry.
New proxy
Company Visit Channel Check Expert Opinion Customer Views
After its listing on 27 Aug, FEHT will be the first and only Singapore-focused hotel and serviced residence hospitality trust listed locally. Prior to this, CDLHT was the chief proxy for the buoyant local tourism industry. FEHTs listing will provide an alternative. FEHT stands out for its pure local exposure, room for organic growth through improved yields and ROFR pipeline from its sponsor. Its positioning and asset locations are arguably not as strong as CDLHTs, though this could present upside from improved yield management and asset enhancement.
FEHT has one of the strongest local acquisition pipelines among locally-listed hospitality trusts. These include ROFR to seven local assets (three hotels and four residences) at a time when accretive third-party assets are hard to find. This pipeline provides acquisition visibility all the way until 2016. Acquisitions could reinforce FEHTs local hospitality positioning.
Financial Summary
Gross Property Revenue (S$m) Net Property Income (S$m) Net Profit (S$m) Distributable Profit (S$m) Core EPS (S$) Core EPS Growth FD Core P/E (x) DPS (S$) Dividend Yield Asset Leverage BVPS (S$) P/BV (x) Recurring ROE % Change In DPS Estimates Dec-09A 74 65 57 47 0.04 26.38 0.03 3.15% 30.4% 0.93 1.00 3.8% Dec-10A 93 84 56 65 0.04 -0.4% 26.48 0.04 4.37% 30.4% 0.93 1.00 3.8% Dec-11A 104 95 66 76 0.04 17.9% 22.46 0.05 5.07% 30.4% 0.93 1.00 4.4% Dec-12F* 50 45 51 37 0.03 -23.1% 29.21 0.02 2.49% 30.4% 0.93 1.00 3.4% Dec-13F** 125 113 84 94 0.05 64.0% 17.81 0.06 6.27% 30.4% 0.93 1.00 5.6%
* & **: FORECA STS A CCORDING TO FEHT P ROSP ECTUS; FP 201 1A UG 201 31DEC 201 2: 2 2
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Designed by Eight, Powered by EFA
We have a very strong pipeline of projects that we will eventually like to add. When they are added, the value of the assets will easily double, which will make us a very big player, easily one of the biggest.
Gerald Lee, CEO of FEHT
FEHT is the first and only Singapore-focused hotel and serviced residence hospitality trust to be listed on the Singapore Stock Exchange. The institutional offering of its IPO has been over 30x subscribed, closing at the top end of its pricing range of S$0.93/share. This translates to FP12-FY13 yields of 6.0-6.3% with a resultant market cap of about S$1.5bn. Trading will start on 27 Aug. The REIT will be managed by FEO Hospitality Asset Management Pte Ltd and sponsored by a group of companies under the Far East Organisation (FEO). Asset operator will be Jelco Properties Pte Ltd, the hospitality management arm of FEO which is wholly owned by Far East Orchard (renamed from Orchard Parade Holdings Ltd). On listing, FEHT will own 11 assets (seven hotels and four serviced residences) in Singapore with a total asset value of S$2.1bn.
Figure 1: Assets can be found near core central region
1 2 3 4 5 6 Albert Court Village Landmark Village Hotel The Quincy Hotel Regency House Orchard Parade Hotel Oasia Hotel 7 8 9 10 11 Changi Village Hotel Regency House Riverside Village Residences Central Square Village Residences Hougang Village Residences
2. INVESTMENT HIGHLIGHTS
Against its listed peers, we like FEHT for its: 1) pure local exposure (minimal risks from foreign exchange and tax leakage overseas); 2) fee structure, pegged at a higher percentage of revenue and gross operating profit; 3) organic growth potential; 4) acquisition pipeline from sponsor; and 5) strong backing of FEO. See Appendix 7.2 for a comparison between FEHT and closest peer, CDLHT.
the Mount Elizabeth Novena Hospital and Changi Business City respectively, in our view.
RevPAU (LHS)
30%
24%
25% 17%
182
208
243
FY10
FY11
* Note addition of new property (Citadines Mount Sophia) in 2010 SOURCES: CIMB, ART
4. SWOT ANALYSIS
Figure 12: SWOT analysis
Strengths Pure local exposure and local investment mandate Opportunities Positive tourism outlook - riding on growth in leisure visitors with new local tourist attractions Sponsor/ operator has track record of running Increased contributions from newly-opened and wellhospitality assets located Oasia Hotel Shareholders' interests aligned with majority stake from Improved REVPARs after asset refurbishments sponsor Higher leverage to upside from performance given higher Room for yield-management to improve RevPARs % pegged to revenue and gross operating profit High fixed and commercial rentals for stability and ROFR pipeline from sponsor for acquisitions downside protection Strong backing by Far East Organisation Weaknesses Not all assets located within the traditional 'touristcentric' areas Lower exposures to higher-yielding corporate segment Less recognised operator and brand names Threats Macro slowdown or recession Price competition given higher price elasticity of leisure visitors Acquisition risks Rise in interest rates and potential drop in distribution once maintenance capex is to be funded out of distributions rather than debt
88.7
Overall, hotels should remain FEHTs bread-and-butter, accounting for an estimated 71% of its revenue in FP12 and FY13 while serviced residences and commercial rentals form 15% and 14% respectively. NPI from hotels (inclusive of commercial rentals) and serviced residences is expected to be at 81% and 19% of the total respectively. Rising contributions from both should raise the
variable component of its revenue over time, though fixed and commercial rentals should still form 57% of its revenue in FY13. Management fee structures echo those of the other listed peers (see appendix). Management has elected to receive 80% of its fees in the form of stapled securities in FP12-FY13.
Value per room key (S$'k) P/BV (x) FY12 NPI yield (%) FY12 DPU yield (%) FY13 DPU yield (%)
At pro-forma yields of 6.0-6.3% for FY12-13, FEHT will be priced fairly on par with its closest peer, CDLHT. At 1.0x P/BV vs. CDLHTs current 1.2x, we believe its listing price captures the differential in their book valuations (estimated value per room key of S$725k for FEHT vs. S$596k for CDLHTs local assets). CDLHT currently trades at forward yields of 6.0-6.2% on a 90% payout, though
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this could rise if management decides to pay more than 90%. We believe that FEHT stands out for its pure local exposure, room for organic growth through improved yields and strong pipeline from its sponsor.
Figure 17: CIMB REIT Overview
SREIT Hospitality Ascott Residence Trust CDL Hospitality Trust Industrial Ascendas Reit Cache Logistics Trust Cambridge Industrial Trust Mapletree Logistics Trust Mapletree Industrial Trust Sabana Shariah Office Frasers Commercial Trust CapitaCommercial Trust K-Reit Suntec REIT Retail CapitaMall Trust Frasers Centrepoint Trust Starhill Global REIT Mapletree Commercial Trust Healthcare Parkway Life REIT Bloomberg Ticker ART SP CDREIT SP Simple Average AREIT SP CACHE SP CREIT SP MLT SP MINT SP SSREIT SP Simple Average FCOT SP CCT SP KREIT SP SUN SP Simple Average CT SP FCT SP SGREIT SP MCT SP Simple Average Price as of Mkt Cap 23 Aug 12 (LC $m) $1.23 $1.95 $1,393 $1,882 Last reported asset leverage 39.7% 25.2% 32.5% 32.7% 32.5% 33.1% 37.0% 37.8% 34.1% 34.5% 39.5% 30.1% 41.8% 39.3% 37.7% 38.4% 31.7% 30.5% 37.6% 34.6% 34.8% 34.8% 35.0% Last reported asset leverage 28.4% 35.3% 19.1% 27.6% 24.0% 24.0% 26.7% 33.5% Last stated NAV 1.42 1.60 Price / Stated NAV 0.86 1.22 1.04 1.24 1.21 0.98 1.18 1.31 0.99 1.15 0.86 0.88 0.91 0.73 0.85 1.22 1.27 0.78 1.13 1.10 1.34 1.34 1.07 $ $ Target Price (DDMbased) 1.21 2.21 2012 Yield 7.4% 6.0% 6.7% 6.0% 7.7% 8.1% 6.9% 6.4% 9.0% 7.4% 6.4% 5.6% 6.7% 6.4% 6.3% 5.2% 5.6% 6.2% 5.5% 5.6% 5.5% 5.5% 6.5% 2013 Yield 7.3% 6.2% 6.8% 6.4% 8.0% 8.3% 7.1% 6.7% 8.9% 7.6% 7.6% 5.8% 6.8% 6.4% 6.7% 5.7% 6.0% 6.8% 5.9% 6.1% 5.9% 5.9% 6.8% Total return (Prospective price upside + 2012 yield) 6.0% 19.8%
Rec. N N
$ $ $ $
N O NR O N NR
$ $ $ $
O O O O
$ $ $ $
N O N O
$1.95
$1,180
1.46
1.96
6.0%
MREIT Bbg Code Retail Capitamalls Malaysia Trust Sunway REIT Pavilion REIT Industrial Axis REIT CMMT MK SREIT MK PREIT MK Simple Average
Price as of Mkt Cap 23 Aug 12 (LC $m) $1.74 $1.50 $1.37 $3,072 $4,045 $4,111
Price / Stated NAV 1.59 1.48 1.43 1.50 1.48 1.48 1.49 1.15 $ $ $
Rec. O O O
2012 Yield 4.7% 5.1% 4.9% 4.9% 5.9% 5.9% 5.2% 6.2%
2013 Yield 4.9% 5.2% 5.3% 5.1% 6.2% 6.2% 5.4% 6.5%
Total return (Prospective price upside + 2012 yield) 8.0% 8.7% 8.3%
AXRB MK Simple Average Simple average for MAL Simple average for ALL
$3.05
$1,384
2.07
NA
NR
10
11
12
Fees - % of revenue and gross operating profit (GOP) for local assets Master-lessees/ Operator for portfolio Fixed rent (S$'m) Revenue mix Fixed/variable rental mix (% of revenue) Geographical mix (% of revenue) Asset mix (% of FY11 revenue) Balance sheet/ Yield Asset leverage (%) FY12 NPI yield (%) FY12 DPU yield (%) FY13 DPU yield (%) ROFR Pipeline
33% of revenue; 23-41% of gross operating profit Jelco (prev. Far East Hospitality Services) S$54m (S$44m for hotel; S$10m for service apartments)
FY11: 47% fixed/ 37% variable/ 16% commercial rental FP12E: 45% fixed/ 41% variable/ 14% commercial rental 100% local Hotel (66.8%), Service Apts (17.1%), Commercial (16.1%)
FY11:47% fixed/ 50% variable/ 3% commercial rental 1H12: 45% fixed/ 51% variable/ 4% commercial rental 80% local; 20% overseas Local hotels (76.7%), Overseas hotels (19.6%), Commercial (3.7%)
Assets
7 assets Completed: Orchard Parksuites, Orchard Scotts Residences, West Coast Village Residences Under devt: The Amoy Hotel, Oasia Downtown Hotel, Oasia West Residences, The Outpost Hotel
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Performance fee
4.0% of NPI for REIT; 10% of EBIT for business trust 0.75% for acquisition price for related-party acquisitions 1.0% for all others 0.5% of divestment price 3.0% of total project costs Up to 0.02% p.a. of value of property, subject to min. of S$20k per mth
4.0% of NPI for REIT, 4.0% p.a. of NPI for business trust
Acquisition fee
0.5% of divestment price NA Up to 0.1% of value of deposited property, subject to min. of S$10k per mth
0.015% p.a. of deposited property, 0.1% p.a. of value of assets, subject subject to min. of S$13.5k per mth to min. of S$10k per mth All except Belgium, Spain & UK: 23% of total revenue; incentive fee of up to 10.0% of gross operating profit Belgium, Spain & UK: 3% of revenue; 6% of net operating profit (NOP); incentive fee of 50% of any excess NOP achieved above NOP hurdle
Nil.
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Recommendation Framework #1 *
Stock
OUTPERFORM: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a benchmark's total return. UNDERPERFORM: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 3 months. TRADING SELL: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 3 months. relevant relevant relevant relevant relevant
Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.
* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)
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Recommendation Framework #2 **
Stock
OUTPERFORM: Expected positive total returns of 10% or more over the next 12 months. NEUTRAL: Expected total returns of between -10% and +10% over the next 12 months. UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 months. TRADING BUY: Expected positive total returns of 10% or more over the next 3 months. TRADING SELL: Expected negative total returns of 10% or more over the next 3 months.
Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%; both over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 3 months.
** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011.
ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCP - Excellent, BEC - Very Good, BECL Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, GRAMMY Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH Very Good, ITD - Good, IVL - Very Good, JAS Very Good, KBANK - Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, THCOM Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good, TUF - Very Good.
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